AT&T follows T-Mobile with more frequent upgrades

NEW YORK - AT&T Inc said on Tuesday that it plans to allow its customers to make annual device upgrades and pay via monthly installment plans to compete with a similar option from smaller rival T-Mobile US.

AT&T, the No. 2 U.S. mobile provider, is under pressure to improve its subscriber numbers as it loses market share to bigger rival Verizon Wireless, and smaller rivals like T-Mobile have started to compete more aggressively for its customers.

Market leader Verizon Wireless, a venture of Verizon Communications and Vodafone Group Plc, is also expected to offer a similar option to its customers in August, according to a Droid Life blog report. Verizon Wireless declined to comment.

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Starting on July 26, AT&T customers could pay monthly installments for their phones or tablet computers and trade in their device for a new one every year. This compares with its previous requirement to stick with the same device for about two years in exchange for a discount.

The move was in direct response to recently announced plan by No. 4 U.S. mobile provider T-Mobile US, under which its customers can upgrade their smartphones as often as twice a year.

AT&T and T-Mobile, which tried but failed to merge in 2011, are grappling to snare each others customers in a market where most people already have smartphones. T-Mobile has been directly marketing against AT&T in recent months.

Wells Fargo analyst Jennifer Fritzsche said in a research note that AT&T’s new option should be positive for the company.

“T-Mobile has clearly been seeing success with its version of this plan,” Fritzsche said, adding that much of T-Mobile’s success “has been at the expense of AT&T.”

But since both companies will be dependent on reselling the traded-in devices to help recoup their costs, Citi analyst Michael Rollins worried that they may lose money if there is a lot more availability of second-hand phones.

“The risk to AT&T and T-Mobile US is that the continued increase in supply for a secondary market for used devices could reduce the resale value and increase the cost of this program to any of the participating carriers,” Rollins said.

Smaller rival Sprint Corp, which was recently bought by SoftBank Corp, did not immediately respond to a request for a comment on the new options from its rivals.

NO UPFRONT FEE, NO SERVICE PRICE CHANGES

AT&T said that under the new plan - branded AT&T Next - it will not charge an upfront device fee, unlike T-Mobile, but will instead charge customers $15 to $50 per month depending on the device.

For example an AT&T customer buying the Samsung Electronics’ Galaxy S4 would pay $32 per month for the device along with a monthly service fee and have the option to trade in the phone after 12 payments.

In comparison, T-Mobile US does charge an upfront fee for the device on top of $10 per month to sign up for its Jump branded upgrade option, and installments of up to $20 per month as well as its monthly service fee.

AT&T typically pays hefty upfront subsidies to device makers so it can offer its customers device discounts and tie them into two-year contracts and then recoup the cost of the phone over the span of the contract through its service fees.

But it is not changing its monthly service prices for the new offering even though it is adding on monthly device installment plans.

Customers under its new plan would not have to commit to a service contract but they would have to sign a 20-month installment agreement. However if the customer trades in their phone with AT&T and starts a new installment plan before 20 months, the outstanding payments are waived.

AT&T said customers who prefer to stick with the old model of keeping a phone for two years could still do so.

AT&T shares were up 17 cents, or less than a half a percent, at $35.72 on New York Stock Exchange, while T-Mobile shares fell 23 cents, or almost 1 percent, to $25.12.